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Friday, May 21, 2010

Establish Intel Corp. Covered Calls

A new covered call position was established today in the Covered Calls Advisor Portfolio(CCAP) with Intel Corp.(INTC) as follows:

05/21/2010 Bought 300 INTC @ $20.30
05/21/2010 Sold 3 INTC Jun2010 $22.00 Call Options @ $.52
The purchase transaction was made very soon after the market opened and the options sale was made about 30 minutes later when the stock had risen and was trading at $20.82.

Intel Corp.(INTC) is the world's leading semiconductor producer and has been the industry leader since the inception of the personal computer. Intel produces products for many facets of advanced technology including flash memory products, motherboards, wired and wireless connectivity products and networked storage products. Its 2009 annual sales exceeded $35 billion and should approximate $40 billion this year. This sales increase coupled with an operating margin approaching 62% should enable Intel to achieve all-time record earnings per share approaching $2.00 in 2011. Applying a P/E of 13 (historically low for Intel) against these earnings implies a very reasonable target price potential of $26, which represents an attractive 28% annualized return potential for the underlying stock over the next year.

The Covered Calls Advisor's "Buy Alerts" spreadsheet below shows that the total points of 17.14 is well above the desired threshold of 15 points for a new investment.

Note: For expanded view, left click on the spreadsheet above.

Two possible overall performance results(including commissions) for the INTC transactions would be as follows:
Stock Purchase Cost: $6,098.95
= ($20.30*300+$8.95 commission)

Net Profit:
(a) Options Income: +$144.80
= 300*$.52 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $20.30):
-$8.95 = ($20.30-$20.30)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $22.00): +$501.05
= ($22.00-$20.30)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $20.30): +$135.85
= (+$144.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $22.00): +$645.85
= (+$144.80 +$0.00 +$501.05)

Absolute Return if Unchanged at $20.30: +2.2%
= +$135.85/$6,098.95
Annualized Return If Unchanged (ARIU) +28.0%
= (+$135.85/$6,098.95)*(365/29 days)

Absolute Return if Exercised at $22.00: +10.6%
= +$645.85/$6,098.95
Annualized Return If Exercised (ARIE) +133.3%
= (+$645.85/$6,098.95)*(365/29 days)

Downside Breakeven Price Point: $19.78
Downside Breakeven Protection: 2.6%

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